Hello everyone, and welcome back to ‘The Dividend Uncle’! Today, we’re diving into Mapletree Logistics Trust (or MLT), one of the worst-performing REITs this year. With a year-to-date price drop of about 25%, Mapletree Logistics Trust’s share price has fallen below $1.30, hitting levels we haven’t seen since 2018 and the onset of the Covid-19 crisis. So why has the share price dropped so much, and is it now at an irresistible price that we must invest in?

Before we dive in, I must let you know that this content is for informational and educational purposes only and does not constitute financial advice. The opinions expressed are based on publicly available information and personal analysis, and they are not tailored to your specific financial situation. The REITs and institutions mentioned are cited purely as examples. While I have no affiliations, sponsorships, or financial relationships with any of them, I may personally hold positions in some of the investments discussed. Before making any investment decisions, you are strongly encouraged to consult a licensed financial adviser.

Okay, let’s dig into today’s video!

Market Context and Why the Drop?

So, why has Mapletree Logistics Trust’s share price tanked? One big reason is China’s economy. Back when Mapletree Logistics Trust’s share price peaked at more than $2.10 during Covid-19, logistics was the poster child, with the whole world consuming through online avenues, and delivery was the key. Then, investors were still optimistic about China’s economy rebounding quickly after Covid-19. Now, investors are staying away from China; it’s struggling with a property downturn, hurting consumer buying and sentiment. This has led to a slump in demand for logistics space in China. At the same time, a large supply of logistics properties is hitting the market, planned a few years ago. Property cycles can be quite volatile due to these delayed effects.

In Mapletree Logistics Trust’s latest financial report, the impact is clear. Their China properties, which make up 18.8% of their portfolio, have seen a negative rental reversion of -10.0%. Compare that to positive rental reversions in other markets, like 11.1% in Singapore, and you get the picture. The overall weighted average rental reversion was 2.9% when including China but would have been 7.1% without it.

Institutional investors like Temasek’s Fullerton and BlackRock have been selling off their holdings, showing a lack of confidence. However, retail investors are still buying Mapletree Logistics Trust in significant volumes. So, is the retail confidence justified, and is Mapletree Logistics Trust now at a bargain price?

Is Mapletree Logistics Trust Now at an Irresistible Price?

Let’s dive into whether Mapletree Logistics Trust is currently at a compelling price to buy. We’ll use three methods based on the price-to-net asset value ratio to determine if now is a good time to enter the market.

1. Comparison of Current Price-to-Net Asset Value Ratio to 10-Year Trend

First, we look at the current price-to-net asset value ratio, which stands at 0.93. Looking at the 10-year price-to-net asset value ratio trend, we can illustrate how this current level compares. Historically, Mapletree Logistics Trust’s price-to-net asset value ratio has only been this low during periods of significant market stress. The last time it dipped below this level was during the 2015-2016 stock market selloff, when global investors were concerned about slowing GDP growth in China, falling petroleum prices, and the Greek debt default.

The fact that Mapletree Logistics Trust’s price-to-net asset value ratio is now at similar levels suggests that the market is heavily discounting its value due to current fears, particularly around its exposure to China. From a historical perspective, this low price-to-net asset value ratio can indicate an attractive entry point. It suggests that the market might be overreacting to current uncertainties, providing long-term investors an opportunity to buy into Mapletree Logistics Trust at a discounted price.

Before we move on, if you’re thinking where I got the 10-year price-to-net asset value ratio trend chart from, well, it’s from reit-tirement.com website, which I introduced to everyone in my last video. The website provides 5-year trends for free, while the 10-year trends are available for members for a small fee. Now, let’s move on.

2. Calculating the Discounts to China Asset Valuations Implied by Current Price

Next, let’s examine the significant gap between Mapletree Logistics Trust’s current price-to-net asset value ratio of 0.93 and its 10-year average of 1.22. This gap is likely due to fears about the performance of Mapletree Logistics Trust’s China assets. Hence, the second method is to compute the market’s implicit discount on Mapletree Logistics Trust’s China assets, assuming that the overall REIT should trade at the 10-year average of 1.22.

By using Excel’s ‘solver’ function, we can estimate the market’s implicit discount on these assets. Our analysis shows that the market is effectively assigning a 70% discount to the value of Mapletree Logistics Trust’s China assets. This substantial markdown highlights the market’s conservative stance towards Mapletree Logistics Trust’s China exposure. While this seems rather harsh, it reflects the significant risks associated with the Chinese economy, including its property downturn and the resulting oversupply of logistics properties.

Despite this, it’s worth noting that the current price-to-net asset value ratio of 0.93 is still quite conservative, suggesting that there could be room for upward correction if the Chinese market stabilizes or if Mapletree Logistics Trust’s other assets continue to perform well.

3. Completely excluding China Assets from Net Asset Value Calculation

Finally, we adopt a very conservative approach by completely excluding the China properties from Mapletree Logistics Trust’s net asset value. This scenario assumes the worst-case scenario where the value of Mapletree Logistics Trust’s China properties drops to zero, which is unlikely but useful for stress-testing.

Excluding China properties increases the price-to-net asset value ratio to about 1.43, which is significantly higher than the 10-year average. Historically, such a high ratio is quite rare, indicating that the rest of Mapletree Logistics Trust’s portfolio would need to perform exceptionally well to justify this valuation. While this approach seems overly pessimistic, it underscores the importance of understanding the potential downside risks.

The Dividend Uncle’s Take

So, what’s my take on Mapletree Logistics Trust given the current situation? Here’s my perspective, based on years of navigating the ups and downs of the market.

Mapletree Logistics Trust has certainly faced a tough year, with a significant price drop and challenges in its China portfolio. However, these difficult times also create opportunities for investors willing to look beyond the immediate noise. The current price levels, which we haven’t seen since the onset of the COVID-19 crisis, offer a potentially attractive entry point for long-term investors.

The three methods we discussed provide a comprehensive view of Mapletree Logistics Trust’s valuation. Historically low price-to-net asset value ratios, significant implied discounts on China assets, and conservative stress testing all point to the potential undervaluation of Mapletree Logistics Trust at current prices. This doesn’t mean the risks are trivial; the challenges in China are real and impactful. However, the rest of Mapletree Logistics Trust’s portfolio continues to perform reasonably well, as evidenced by positive rental reversions in markets like Singapore and South Korea.

Moreover, the continued interest from retail investors suggests a strong base of confidence in Mapletree Logistics Trust’s long-term prospects. While institutional investors might be more cautious, retail investors often have a longer-term horizon and are less swayed by short-term market fluctuations.

In short, while Mapletree Logistics Trust is not without its risks, the current price levels offer a compelling case for consideration. As always, diversification remains key. Balancing Mapletree Logistics Trust with other stable dividend stocks can help mitigate risks and capture potential upside as the market stabilizes.

Remember, the goal is not just to chase high yields or low prices, but to build a resilient portfolio that can weather different market conditions. Stay informed, stay patient, and happy investing!